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Analysis

It may not provide all the ticks on everyone’s wish list, but the new SEPA Instant Credit Transfer Scheme (SCT Inst) could well be the start of something even more seismic for the European payments sector and also pave the way for a different, more immediate way of conducting business.

Advocates of the single market see SCT Inst as the catalyst for broad transformation that, along with the Revised Payment Services Directive (PSD2), will considerably alter the face of the European payments system. Javier Santamaría, chair of the European Payments Council (EPC), believes that over a period of several years, the real impact of this initiative will make its mark on the region. “SCT Inst is more than just about making quicker payments, it reflects the growing trend for faster business processes,” he says.

“Our world is all about immediacy and some aspects of business, such as banking, have struggled to adapt to a changing world – for a number of reasons. We don’t expect that the full benefit of this new system will be visible for a while, but we could look back on the introduction of schemes like SCT Inst as a turning point for the industry.”

SCT Inst could strengthen the concept of the single market that has been trying to harmonise itself against a backdrop of EU unrest and political problems in the southern half of the continent. As Santamaría points out, the EPC’s raison d’etre was to further integration, so the introduction of SCT Inst was as much about preserving that mission as it was to bring new technologies to the broader environment.

“EPC was created for SEPA and our underlying goal is the development and furtherance of the market. Yes, the arrival of various national solutions was a concern, but it also reflects the innovation that’s in the eco-system. Avoiding fragmentation was probably the strongest argument for the implementation of SCT Inst.”

The arrival, enthusiasm and success of various national schemes suggests that SCT Inst is fulfilling a definite need, so some might say the pan-Eurozone solution is long overdue, but Santamaría defends any hint that Europe’s structure makes it difficult to achieve. Certainly, other regions that do not have the complexity or legacy of Europe have found it easier to kick-start new systems. “Although we are obviously championing and working towards a single, integrated market, we have to accept that some practices remain localised. Europe’s diversity is seen as a positive in many cases, but it can also create obstacles, meaning it takes longer to reach consensus and to conclude projects than in lesser developed markets. It does take more time in Europe, we cannot deny that,” admits Santamaría.

Yet bringing some 500 million people into a single scheme for euro transactions is seen as something of a triumph. But expectations have to be tempered and the EPC and Santamaría have not tabled unrealistic deadlines. This conservative view is shared by many, judging by a survey on the EPC site asking people when they expected “critical mass” to be reached in the scheme. A third of respondees felt that the system would have sufficient traffic after 2020, but within SEPA, there are deadlines imposed on new projects for the adoption process – normally two to three years. In other words, behind the scenes, people will not wait forever.

That may be academic, though, as Santamaría expects SCT Inst to be well received and to meet all deadlines imposed upon it.

If fragmentation across European payments would have been a problem, the issue of interoperability is definitely an ongoing concern. For SCT Inst to be truly successful, systems will need to speak to each other and broad adoption has to be a pre-requisite. From the outset, it is an optional system, so if that’s the case, how will it become ubiquitous? Again, Santamaría is confident that market forces will drive its use.

He is adamant that optionality is not an obstacle although there are other issues at stake, such as the need for complementary, interoperable systems that allow technical integration and the cost of investment associated with new systems – some smaller banks might find the bill too high and decide not to offer the service, although those that do not take up the challenge run the risk of losing out on a big business opportunity. Santamaría adds the EPC didn’t want to make anything mandatory at this introductory stage as this would bring added pressures.

Importantly, one of the reasons for optimism is that SCT Inst is, in many ways, a response to customer requirements and Santamaría sees similar demand driving the take-up of the new system. “I am of the opinion that natural momentum will dictate the speed of adoption – customers that want the convenience and benefit of real-time payments will ask their payment service providers to offer that service.”

Of course, there are reservations about security and the need for due diligence to keep pace with instant payments. Maintaining risk management measures when the world has just got considerably faster poses significant challenges and the EPC will be watching this issue closely in the early months.

Within the system, elements such as data transfer, screening, validation, authorisation and settlement have to be built in, but with an instant payments environment, these steps have to be executed in a very tight timeframe. Naturally, there is some anxiety that this may make any such system vulnerable to missing errors or criminal activity such as fraud, money laundering or other aspects of cyber crime. “Everyone knows this is a major priority for our scheme,” says Santamaría. “But the launch of SCT Inst and other systems that offer real-time payments provides the opportunity to overhaul existing measures to ensure they comply with our requirements and allows the chance to implement the best possible controls.”

There are also questions being asked about the transfer limit for the system – a maximum of €15,000 per transactions. On a consumer basis, this would appear to be adequate, but if SCT Inst is to flourish on a B2B basis, surely this is too low, and possibly over-cautious? Santamaría explains: “This is something that is frequently discussed and of course, we will need to watch it carefully. People should be aware that nothing is cast in stone with this new initiative. Of all the things that we will be reviewing on a regular basis, B2B business and this limit will be a priority point. We are prepared to act if we need to and act quickly. Our approach to this is very pragmatic.”

Santamaría sees SCT Inst and PSD2 as signs of our times, both being an underlying response to a market that is constantly evolving. SCT Inst was first discussed two years ago and its details have been known for at least a year. Concludes Santamaría: “It is no coincidence that both are being launched at more or less the same time. They both have a common goal in promoting an integrated market with a greater level of homogeneity. One of PSD2’s objectives is further increase innovation in payments, so I am very confident that we will beat expectations for SCT Inst. We are at the start of a journey that will see a host of new methods of payment, so it’s an exciting time for our industry.”

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